A blog by Harry Stein about public policy, with some DC sports thrown in.

Financial Aid to Make College Affordable Should Go to Affordable Colleges

Jordan Weissmann’s excellent article about the problems with financial aid for higher education opens with this interesting factoid:

If the federal government were to take all of the money it pours into various forms of financial aid each year, it could go ahead and make tuition free, or close to it, for every student at every public college in the country.

Of course, college isn’t free. Total U.S. student loan debt recently exceeded $1 trillion. Weissmann finds that colleges are using more of their own resources for merit-based aid. That leaves low-income students to rely on federal aid, which is increasingly inadequate to cover the growing cost of college. We’re not just talking about for-profit colleges either. Many non-profits and some public universities also play this game.

In a way, merit aid to one top-notch high school student can be understood as a marketing tool for every other prospective student. More valedictorians and a higher average SAT score makes a school seem more selective, and more prestigious to attend. Higher education is a market, and these colleges are probably making decisions about tuition and aid with a goal of maximizing revenues.

It’s not a crime for colleges to act in their own financial self-interest, but the government should also get the highest possible return on investment from federal financial aid. Pell Grants are meant to make college affordable for low-income students. Weissmann’s article highlights schools where low-income students pay over $10,000/year, and over 15% of students also receive Pell Grants (the blue dots in the graph below, or explore the interactive version here). These schools are receiving a lot of federal money that is supposed to make college affordable to low-income students, but those students are still stuck with five figure bills.

No doubt many of these are excellent colleges, but policymakers should think hard about whether this is the best use of federal student aid. This aid isn’t just for the student – it is also a subsidy for the college, which is able to charge higher tuition than their students would otherwise be able to pay.

The Department of Education has focused on problems at for-profit colleges, with new regulations that attempt to impose minimum standards as a condition for federal aid eligibility. While there are certainly problems in the for-profit sector, many of these are fine schools, and affordability problems also exist among some private non-profit and public universities. Just because there aren’t shareholders, doesn’t mean money isn’t being made. In all 50 states, the highest paid public employee works in a public university (it’s usually the football coach).

Rather than limiting new regulations to the for-profit sector, the Department of Education should focus on schools that receive a large portion of their revenue from federal aid, yet remain expensive for low-income students. If the federal government is going to send lots of money to expensive colleges, we should be sure that students are leaving those institutions with a good degree, and not just huge student loan debt.